By encouraging shareholders to reinvest their profits, the company will improve its market position and hopefully yield a profit for its shareholders at a much higher margin in the future. Dividend reinvestment programs, because they usually require no brokerage fees, and allow stock to be purchased directly from the company, incentivize the purchase of more stock by current shareholders. They are an excellent way for shareholders to easily and effortlessly build their stock portfolio and small companies to encourage expanded ownership. Shareholders are given a potentially more lucrative way of slowly growing their earnings, rather than receiving a (relatively small, in the case of CAE) dividend.
Suggested changes: Suggestions
Currently CAE only allows Canadian investors to engage in the dividend purchase option. In the future, to expand foreign investment in the company, it could extend a similar policy to all shareholders, regardless of nation of origin.
These policies have an overall market stabilizing effect, as well as help the company in question build a shareholder base. Other options to encourage a loyal clientele of investors are preferred stock options. These stock options offer no voting rights, but preferred stock holders are paid 'first,' after bond holders, when the company yields a profit. Preferred stock encourages investment in new and rising companies, given the added security such options offer.
Bibliography
"Investors." Official CAE Website. January 26, 2011.
http://www.cae.com/en/investors/dividends.asp
"Preferred stock." Investopedia. January 26, 2011.
http://www.investopedia.com/terms/p/preferredstock.asp
"What are dividend reinvestment plans?" Motley Fool. January 26, 2011.
http://www.fool.com/school/drips.htm
